No special prosecutor needed for U.S. tax agency probe: Justice Dept

WASHINGTON (Reuters) - A top Justice Department official, deflecting demands from Republicans, said on Thursday that a special prosecutor was not needed to look into past U.S. Internal Revenue Service treatment of conservative groups and the agency's loss of related emails.

Deputy Attorney General James Cole, the Justice Department's second-in-command after Attorney General Eric Holder, told lawmakers the IRS was being thoroughly and fairly investigated.

No decisions have been made on whether criminal activity had taken place at the IRS, he said in testimony before a House of Representatives Oversight and Government Reform subcommittee.

"The whole range of options are still open," said Cole, refusing to be drawn on details of the ongoing probe.

The IRS's worst crisis in years erupted in May 2013 when a senior staffer publicly apologized for what she termed "inappropriate" extra scrutiny by the agency of applications for tax-exempt status from conservative political groups.

Republicans were furious, accusing the IRS of singling out conservatives for unfair treatment. The senior staffer, Lois Lerner, became a lightning rod for criticism but the scandal had largely faded from view by early 2014.

Then last month the IRS said it had lost emails written by and to Lerner from 2009 to 2011 that congressional Republicans had been seeking for their own investigation, which has been under way for more than a year.

In written testimony released on Wednesday, Cole revealed that the Justice Department's inquiry was widening to include the loss of the emails. Lerner has since retired from the IRS.

Cole said the Justice Department did not learn about the email losses, which the IRS has attributed to a failed computer hard-drive, until news reports about them.

He dismissed Republicans lawmakers' calls for the appointment of a special prosecutor, as well as allegations that the probe was compromised because a veteran Justice Department trial attorney working on it, Barbara Bosserman, had donated $6,750 to President Barack Obama's election campaigns over the past 10 years.

Bosserman was not the "lead" investigator and based on federal laws, her donations did not warrant her removal from the case, Cole said.

House Oversight and Government Reform Committee Chairman Darrell Issa, who has competed with Ways and Means Committee Chairman Dave Camp for control of the Republican probe, challenged Cole about the outcome of Justice's investigation.

"You cannot spend taxpayer dollars if you do not have a belief that it's going to lead to a crime. That would be a frivolous investigation at some point, wouldn't it?" he said.Democrats accused Republicans of hunting for "conspiracy theories" and trying to show that the White House directed the IRS to target conservative groups.

"This is not the basis of a White House scandal. This is the latest example of Republicans desperately searching for one, and then using any excuse they can to manipulate the facts until they no longer have any resemblance to the truth," said Representative Elijah Cummings, the panel's top Democrat.

(Reporting by David Lawder; Editing by Kevin Drawbaugh and James Dalgleish)